Saturday, April 21, 2012

For a few months the incoming data was above expectations. This was a combination of somewhat stronger reports and very low expectations. Since then expectations have increased, and the data has been a little weaker - so the data has been mostly below expectations for several weeks now. This doesn't suggest a sharp slowdown, just more sluggish growth as the economy continues to recover from the financial crisis, and as household continue to deleverage.

This was another week of somewhat disappointing data, a key exception being very strong retail sales in March. Housing starts declined in March, although the decline was mostly due to the volatile multi-family sector (and permits were up suggesting a bounce back next month). Existing home sales were below expectations, but inventory was down again – and is now down 21.8% year-over-year. Weekly initial unemployment claims declined, but the overall level is still fairly high.

Here is a summary in graphs:

• Housing Starts declined in March

Click on graph for larger image.

Total housing starts were at 654 thousand (SAAR) in March, down 5.8% from the revised February rate of 694 thousand (SAAR). Note that February was revised down from 698 thousand.

Single-family starts declined 0.2% to 462 thousand in March. February was revised up to 463 thousand from 457 thousand.

Total starts are up 37% from the bottom, and single family starts are up 31% from the low.

This was well below expectations of 700 thousand starts in March, but mostly because of multi-family starts.

This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993.

Sales in March 2012 (4.48 million SAAR) were 2.6% lower than last month, and were 5.2% above the March 2011 rate.

According to the NAR, inventory decreased to 2.37 million in March from 2.40 million in February. Inventory is not seasonally adjusted, and usually inventory increases from the seasonal lows in December and January to the seasonal high in mid-summer.

This graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Since inventory is not seasonally adjusted, it really helps to look at the YoY change. Note: Months-of-supply is based on the seasonally adjusted sales and not seasonally adjusted inventory

Inventory decreased 21.8% year-over-year in March from March 2011. This is the thirteenth consecutive month with a YoY decrease in inventory.

The DOL reports: "In the week ending April 14, the advance figure for seasonally adjusted initial claims was 386,000, a decrease of 2,000 from the previous week's revised figure of 388,000. The 4-week moving average was 374,750, an increase of 5,500 from the previous week's revised average of 369,250."

The previous week was revised up to 388,000 from 380,000. Claims for two weeks ago were revised down.

This graph shows the 4-week moving average of weekly claims since January 2000.

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims increased to 374,750. This is the highest level for the 4-week moving average since January.

This graph shows the Architecture Billings Index since 1996. The index was at 50.4 in March (slight expansion). Anything above 50 indicates expansion in demand for architects' services.

According to the AIA, there is an "approximate nine to twelve month lag time between architecture billings and construction spending" on non-residential construction. So this suggests further declines in CRE investment in early 2012, but perhaps stabilizing mid-year.

This graph shows Capacity Utilization. This series is up 11.8 percentage points from the record low set in June 2009 (the series starts in 1967).

Capacity utilization at 78.6% is still 1.7 percentage points below its average from 1972 to 2010 and below the pre-recession levels of 81.3% in December 2007.

Note: y-axis doesn't start at zero to better show the change.

The second graph shows industrial production since 1967.

Industrial production was unchanged in March at 96.6; however February was revised up from 96.2.

The consensus was for a 0.3% increase in Industrial Production in March, and for a decrease to 78.6% (from 78.7%) for Capacity Utilization. Although below consensus, with the February revisions, this was close to expectations.